Temperature Check: Financial Services M&A

Coalescing factors will drive an uptick in M&A activity in the financial services sector next year. First, recent pressures on the banking system and the continued availability of private equity dry powder will result in historically low valuations (particularly in FinTech). There is also an intense focus on investing in talent and technologies in digital banking and cloud technologies, and facilitating due diligence in financial transactions and M&A transactions. Finally, expect an uptick in companies acquiring or expanding fee-generating businesses to diversify their revenue streams. Due in part to three regional bank failures, US regulators may lower the threshold at which banks are subject to stricter regulatory requirements, like higher capital levels and more onerous stress testing. Banks at or near the new threshold could use M&A to either grow and disseminate the added compliance costs over a larger operation, or divest to remain beneath the threshold.

Activity level: Full steam ahead